MeenaKrishnamsetty

MattDoiron

We track quarterly 13F filings from hundreds of hedge funds, including billionaire Kerr Neilson's Platinum Asset Management. We use the information in 13Fs to help us develop investing strategies; for example, we have found that the most popular small cap stocks among hedge funds outperform the S&P 500 by an average of 18 percentage points per year (learn more about our small cap strategy). Our explanation for this finding is that small cap stocks are more likely to be mispriced as they receive less attention from large institutional investors and the financial media. As such investors may be more likely to find undervalued (or overvalued) stocks here than in larger caps, and so we like to go through individual 13Fs in search of initial investment ideas for further research. Read on for our thoughts on Platinum's five largest small cap holdings as of the end of March or see the full list of stocks the fund reported owning.

Neilson had over 5 million shares of Sina
SINA, -0.02%
the $3.7 billion market cap Chinese Internet portal (as well as owner of the Weibo blogging platform), in its portfolio at the end of Q1. Profits have been low on a trailing basis compared with where the company currently trades. Revenue has been doing well, rising 19% in the first quarter of 2013 versus a year earlier, but markets are already pricing in high earnings growth. While analysts appear extremely bullish on growth over the next several years, we think that we would avoid Sina at these levels for now. Robert Karr, Brian Kelly, and Sanford Colen are bullish about the stock.

Platinum increased its holdings of engineering and construction company Foster Wheeler
US:FWLT
to a total of nearly 10 million shares. Foster Wheeler, which focuses on energy related facilities and infrastructure, has been quite acquisitive lately with recent purchases of Ingen and of NorthAm Engineering. At a beta of 2.1, the business is quite dependent on broader economic activity. While recent financial performance has been poor, analysts expect a rebound and the forward P/E comes in at 11. Citadel Investment Group, managed by billionaire Ken Griffin, reported a position of 4.3 million shares in its own 13F (find Griffin's favorite stocks).

$1.2 billion market cap industrial metals company Stillwater Mining
SWC, +0.42%
was another of Neilson's small cap picks with the filing disclosing ownership of over 16 million shares. It is best known for producing palladium and platinum, and is another high-beta stock; specifically, the beta is 2.8. Earnings more than doubled last quarter compared with the first quarter of 2012, with revenue up decently as well, but Stillwater still attracts a good deal of short interest with 18% of the float held short. Billionaire Ken Fisher's Fisher Asset Management was another major shareholder.

According to the 13F, Platinum owned 2.5 million shares of Sohu.com
SOHU, +2.51%
at the beginning of April. Another Chinese Internet portal, Sohu grew its revenue by over 30% in its most recent quarter compared with the same period in the previous year but net income was up only 6%. With a valuation of 28 times trailing earnings, it would have to do better on the bottom line in order to justify its current price. Orbis Investment Management, managed by William Gray and his team, was the largest Sohu shareholder out of the filers we track with a position of 7.6 million shares. Peter Franklin Palmedo, Steve Cohen, and Paul Tudor Jones are also among SOHU shareholders.

Chinese Internet TV and video company Youku
YOKU, -0.82%
rounds out our list of the fund's largest small cap holdings. Youku is unprofitable on a trailing basis, and is expected to report considerable losses this year as well before improving in 2014. Still, the forward P/E is 21. While sales growth has been quite high, we would warn investors that this is another stock generally dependent on market conditions with a beta of 3.2 (though it is down 16% in the last year). Bain Capital's hedge fund Brookside Capital owned 8.2 million shares of Youku at the end of the first quarter of 2013.

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